U.S. CPI points to easing recession

By Lucia Mutikani and Emily Kaiser

WASHINGTON (Reuters) - U.S. economic data offered more evidence on Friday that the recession's worst phase may be over, with April consumer prices unchanged and industrial output declining at a slower pace than in March.

Signs that the 17-month-old recession may be nearing an end helped push consumer confidence in May to its highest since the collapse of investment bank Lehman Brothers last September.

Further dissipating the gloom, the contraction in New York state factory activity eased this month.

"The more data we are seeing, it's not a doomsday scenario. Yes, we are still in a recession, but we may be in the stage of pre-recovery," said Andrew Richman, fixed-income strategist at SunTrust Private Wealth Management in Palm Beach, Florida.

However, U.S. stocks fell as investors skimmed profits off the market's two-month rally from 12-year lows in early March. The Dow Jones industrial average ended down 62.68 points at 8,268.64, while the Standard & Poor's 500 Index dropped 10.19 points to 882.88.

Government bond prices slipped and benchmark yields, which move inversely, pushed off two-week lows.

The LabourDepartment said the U.S. Consumer Price Index was flat last month, as expected, after edging 0.1 percent lower in March. Compared with the same period last year, consumer prices fell 0.7 percent, the biggest 12-month drop since June 1955.

Rising unemployment is eroding household income and undercutting consumer demand. The virtual absence of demand and the general slack in the economy have robbed companies of pricing power, keeping inflation low and increasing concerns about a possible dangerous downward spiral in prices.